Apple raises bet in poker game with Microsoft over mobile productivity

Apple yesterday poked the bear that is Microsoft by announcing that it would give away its trio of iWork productivity apps to buyers of new iOS 7-compatible iPhones, iPads and iPod Touches purchased after Sept. 1.

As part of the iPhone 5S and 5C unveiling Tuesday, CEO Tim Cook said that the three apps -- Pages, Numbers and Keynote -- will be offered as free downloads to eligible customers, who include those activating new iPhones, iPads and iPod Touches. Also slated for the same treatment: iPhoto and iMovie on iOS.

"We think that iWork is a really key advantage for our customers' productivity," said Cook Tuesday as he unveiled the free deal. "We think that all iOS devices are made even better if they have these apps. And almost all of customers want these apps."

Ezra Gottheil, analyst with Technology Business Research, saw the deal as another move by Apple to solidify customer loyalty, lock them into its hardware ecosystem, and most importantly, sell more devices.

"Clever," said Gottheil Tuesday after Apple's iPhone event. "It both differentiates and adds value to the platform, though it's more meaningful on the iPad than the iPhone."

Historically, almost every decision Apple makes about its software -- its pricing, what it builds in-house, what it includes or doesn't with the iOS operating system -- has been to forward device sales. This, said Gottheil, is no different.

"It's all about adding value to the hardware," said Gottheil, acknowledging that iWork wouldn't tip individual decisions toward an iPhone or iPad, but believing the apps are just more in the "package" of services and software Apple maintains for its customers.

The freeing of iWork followed by three months the introduction of iWork for iCloud, a browser-based service that puts Pages, Numbers and Keynote online and accessible from Apple's iOS and OS X devices, and from systems running rival Microsoft's Windows.

iWork for iCloud remains in beta -- Apple has not said when it will scratch out that designation -- but all iCloud account holders have been able to use the online apps since late August. Apple has not said whether iWork for iCloud will be free or come with a price tag, but Cook's announcement yesterday prompted Gottheil to bet solidly on the former.

"They're giving up some software revenue, particularly on the iPad, but sales may not be meaningful," said Gottheil. "I think a free iWork for iCloud would be an interesting play, too."

It's impossible to tell from Apple's financial statements how much revenue it books for software; the company tosses that money into a bucket that also includes the much larger amounts generated by the iTunes e-commerce ecosystem and Apple's for-pay services, such as additional iCloud storage space and iTunes Match.

This summer, when Apple rolled out iWork for iCloud, Gottheil and other analysts viewed the new online apps as competitors to Microsoft's and Google's similar cloud productivity offerings, Office Web Apps and Google Docs, respectively.

Apple has decided to give away the iOS iWork apps to all new device buyers. Pages, shown here, is a simple word processor and document designer. (Image: Apple.)

Then Gottheil said iWork for iCloud meshed with Apple's long-running strategy of trying to tempt consumers and small businesses now in the Windows camp to defect to OS X, iOS or both. "I see this as building a bridge from Windows to the Apple platforms," said Gottheil of the entry into Microsoft Office's turf.

The free iWork apps fit that strategy, he said yesterday.

Apple does now have a leg up on Microsoft in the space, since the former is giving away mobile productivity apps and the latter is not.

Microsoft has shipped Office Mobile -- an app that includes scaled-back versions of Word, Excel and PowerPoint -- for the iPhone (in June) and Android (in July). But while the apps themselves are free to download, they must be linked to an active Office 365 account before they'll work. The least-expensive Office 365 plan -- there are a range for consumers, small business and enterprises -- costs $100 a year.

Microsoft has not released Office Mobile for the iPad or Android tablets, an omission that has been hotly criticized by analysts.

Those experts believe Office has been withheld from the iPad and Android tablets because CEO Steve Ballmer decided to use the suite as a carrot to draw customers to the Windows 8 and Windows RT tablets that Microsoft and its OEM partners manufacture.

Apple's free iWork apps won't budge Microsoft: The former may be adequate for consumers and sole proprietors, but the latter's Office is entrenched in business.

Gottheil expected to see a little blow-back from current owners of iOS hardware -- those with iPads especially -- over Apple's move. Some of them, he said, would complain that they'd paid for something others will now get gratis, while others would say that they'd been left out in the cold even though they'd been loyal customers of the company's products.

But he didn't anticipate a major backlash, if only because the apps, while noteworthy, didn't cost enough to trigger anger.

Cook gave no indication yesterday that the OS X versions of iWork, which cost $19.99 each for the three programs -- will also be made free to Mac customers at some point. OS X editions of iMovie and iPhoto have long been bundled with new Macs.

Eligible devices include iPhone 4 and later, iPad 2 and later, and fifth-generation iPod Touch devices. The device must be running iOS 7, the upgrade slated to ship Sept. 18, to qualify for the free downloads of iWork, iMovie and iPhoto.

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